COMMENTARY | COLUMNISTS | GEORGE HAWKINS

What statistics say about the minimum wage

The government-imposed minimum wage in California is on the rise. It will move from $8 per hour to $9 on July 1, and $10 per hour on Jan. 1, 2016.

President Barack Obama recently announced that he will use an executive order to increase the low-end salary of $7.25 an hour paid to employees of federal contractors to $10.10 an hour.

San Diego’s interim mayor, Todd Gloria, says a floor wage of $14.25 is appropriate for America’s Finest City. The approximately 30,000 citizens of the Washington state city of SeaTac, which hosts a major airport of the same name, just agreed, by a very small margin, that slightly more than that is the least an employer there can pay most employees.

In 1938 Congress passed the Fair Labor Standards Act. It established basic pay requirements across the nation and set 25 cents as the lowest wage for most employees. In essence, it developed a national standard.

Number crunchers say 25 cents in 1938 is equivalent to about $4 in today’s currency. Currently, the national minimum wage is $7.25. There is talk in Congress of increasing that minimum.

There are hundreds, perhaps thousands, of economic reviews and evaluations of the impact raising the minimum wage has on employment levels. Economists offer conflicting opinions as to what happens when the lowest legal wage is increased by government edict.

One study examined an 80-cent increase in New Jersey compared with no increase in neighboring Pennsylvania. At the time, 1992, the minimum wage in both states was $4.25. According to that study, after the increase employment numbers rose in New Jersey but did not increase in Pennsylvania. The review was limited to changes in the fast-food employment sector.

Other statistical evaluations have come to different conclusions. The data are overwhelming.

The bottom line is, perhaps, best expressed in a summary of an examination written by Saul D. Hoffman and Diane M. Trace and published in the Eastern Economic Journal in 2009.

In part, they said, “A recent summary of the minimum wage literature by Neumark and Wascher concludes that traditional economic theory is right far more often than it is wrong when it comes to the employment effects of the minimum wage. They cite 102 studies, of which ‘nearly two-thirds give a relatively consistent (although by no means always statistically significant) indication of negative employment effects while only eight give a relatively consistent indication of positive employment effects’ … They further note that 28 of the 33 studies they regard as most credible and most studies focusing on least skilled groups find negative impacts. Our evidence on the 1996-1997 PA-NJ minimum wage experiment is consistent with this body of literature.”

The phrase “although by no means always statistically significant” is instructive. If I interpret that correctly, it comes down to this: Increasing the minimum wage has minimal long-term impact on employment levels.

One thing is painfully obvious. There will always be a bottom level of wages, now artificially imposed by government action. Eventually the system will adjust to that new bottom. The lowest wages will still go to some employees. Others will earn more.

A new factor has lately arrived on the scene. Bloomberg News and the Associated Press say Target is joining Trader Joe’s, Home Depot and other U.S. retailers in scaling back health care benefits.

Target said in posting this information that by offering its part-time employees health insurance it could disqualify many of them from new subsidies that could reduce overall health insurance expenses. The Congressional Budget Office now projects Obamacare will significantly increase the number of part-time workers.

On the one hand, Obama wants to raise the wages paid to some employees and on the other, he has created an incentive for employers to keep their wages and benefits low. One action seems to contradict the other.

Since the 1930s the minimum wage has risen from a 25-cent piece to over $7 per hour. In some locales it is as high as $15. The arguments about decreased employment notwithstanding, the primary reason cited for doing this is to move low-wage workers out of poverty.

Why, then, are such “large” numbers of Americans still considered poverty-stricken?

Hawkins is retired after 35 years as a construction industry association manager. He was a broadcast reporter and news anchor in Denver. As a Navy officer, he saw action in Vietnam in the River Assault Squadrons and is the recipient of a Silver Star and Purple Heart.

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